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Welfare calculations in discrete choice models when anticipated and experienced attributes differ: A guide with examples

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  • Train, Kenneth

Abstract

The attributes that consumers anticipate or expect when choosing among alternatives (i.e., prior to consumption) often differ from the attributes that they actually experience when consuming their chosen alternative. This paper describes, and illustrates with several examples, the calculation of consumer surplus in this situation and the loss in consumer surplus due to the imperfect foreknowledge about attributes. The procedures are useful in many settings, such as the assessment of damages for false advertising and the analysis of informational policies.

Suggested Citation

  • Train, Kenneth, 2015. "Welfare calculations in discrete choice models when anticipated and experienced attributes differ: A guide with examples," Journal of choice modelling, Elsevier, vol. 16(C), pages 15-22.
    • Handle: RePEc:eee:eejocm:v:16:y:2015:i:c:p:15-22
    DOI: 10.1016/j.jocm.2015.09.003
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    References listed on IDEAS

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    1. Small, Kenneth A & Rosen, Harvey S, 1981. "Applied Welfare Economics with Discrete Choice Models," Econometrica, Econometric Society, vol. 49(1), pages 105-130, January.
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    3. Schmeiser, Steven, 2014. "Consumer inference and the regulation of consumer information," International Journal of Industrial Organization, Elsevier, vol. 37(C), pages 192-200.
    4. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, September.
    5. van der Klaauw, Wilbert & Wolpin, Kenneth I., 2008. "Social security and the retirement and savings behavior of low-income households," Journal of Econometrics, Elsevier, vol. 145(1-2), pages 21-42, July.
    6. Nicky J. Welton & Howard H. Z. Thom, 2015. "Value of Information," Medical Decision Making, , vol. 35(5), pages 564-566, July.
    7. Robert Jensen, 2010. "The (Perceived) Returns to Education and the Demand for Schooling," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(2), pages 515-548.
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